Impact of China s WTO entry

Impact of China's WTO entry

Under the negotiated terms of China's entry to the WTO, import tariffs and localization requirements will be gradually reduced in stages. The progress of liberalization may be charted as shown in Table 6.1.6.

Table 6.1.6: Stages in the reduction of tariffs and local content requirements

Impact	Current	2003	2006
Tariff reductions	Import tariffs for autos:80% “100%	Import tariff cuts phased in equally 15% each year	Import tariffs for autos will be reduced to 25%
	Import tariffs for auto parts : 40%		Auto parts tariffs will fall to average of 10%
Investment and technology transfer up to 80% (Year 3)	Local content requirements for CBU will be restricted to 40% for Year 1, 60% (Year 2) and	Will eliminate policies which restrict foreign automotive companies from importing inputs for production i	Significant commitments in addressing concerns about the terms and conditions of nvestment in China, and the government's role in what should be commercial decisions
	Foreign ownership is allowed (up to 50%)	Will eliminate and cease enforcing trade and foreign exchange balancing requirements

Whatever changes these relaxations in restrictions on foreign company operations bring to the structure and ownership of the industry and the reduction of prices, it is likely that local production will maintain the mainstream of the China automotive market. There is no precedent in the import experience of other Asian markets, ranging from Korea (1 per cent share) through Thailand (3 per cent) to Japan (5 per cent) for supposing that multinational auto-manufacturers will succeed in penetrating the China auto market, except for luxury cars , other than through foreign invested enterprises .

In the medium term there is some reason to question whether China will be able to sustain the tremendous market growth in passenger cars seen in 2002 and to question what might be done to keep the bandwagon rolling by stimulating demand. Possible measures could include the relaxation of import quotas, modernization of vehicle financing, improved vehicle servicing and recall facilities. There are certainly business opportunities in all these areas.

A more intriguing question is how long it will be before China begins to export automobiles. In other industrial sectors, such as white goods, computers and now communications, Chinese manufacturers have progressed from being backward domestic suppliers to global exporters in a very few years . In the automotive sector, King Long Buses have established a joint venture in India to build CKD bus kits supplied from China, and Honda have begun to talk openly about producing a derivative of the Fit/Jazz supermini for export from China. The prospect of China becoming an automotive exporter draws closer.